Prime cost functions like your restaurant's pulse — it's the heartbeat that reveals if your two biggest expenses (food and labor) are keeping your business alive or slowly draining its lifeblood. This critical metric shows exactly what percentage of your revenue disappears into ingredients and wages. Most thriving restaurants maintain a prime cost between 55-65% of revenue.
What exactly is prime cost?
Prime cost consists of two components:
- Food cost: all expenses for ingredients and beverages
- Labor costs: all wages, social contributions, and employer costs
These two expenses typically eat up 55-70% of your total revenue. If your prime cost climbs higher, there's precious little left for rent, utilities, equipment, and profit.
💡 Example:
Restaurant with €50,000 revenue per month:
- Food cost: €15,000 (30% of revenue)
- Labor costs: €13,000 (26% of revenue)
Prime cost: €28,000 = 56% of revenue
Why is prime cost so important?
Prime cost represents your largest expense category. If it spirals out of control, you can manage every other cost perfectly — but you'll still struggle to turn a profit. It's also where you have the most control.
Other expenses like rent are fixed. But you can control:
- How many staff you schedule per shift
- Which ingredients you purchase and at what prices
- How efficiently your kitchen operates
- How much food gets wasted
Calculating food cost
Food cost equals all ingredient and beverage expenses in a period, divided by your revenue in that same timeframe.
Food cost formula:
(Total ingredient purchases / Revenue excl. VAT) × 100
💡 Food cost example:
January:
- Revenue: €45,000 incl. VAT = €41,284 excl. VAT
- Ingredient purchases: €12,500
Food cost: (€12,500 / €41,284) × 100 = 30.3%
⚠️ Note:
Always calculate using revenue excluding VAT. The VAT isn't yours — you're just collecting it for the tax authority.
Calculating labor costs
Labor costs extend beyond basic wages. You must include all employer expenses:
- Gross wages for all staff members
- Employer social contributions (roughly 25% of gross wage)
- Holiday pay (8% of gross annual wage)
- Any bonuses or tips processed through payroll
💡 Labor costs example:
3 employees, €8,000 gross per month total:
- Gross wages: €8,000
- Employer contributions (25%): €2,000
- Holiday pay (8% of annual wage): €533
Total labor costs: €10,533 per month
Calculating prime cost percentage
Now you combine both components and divide by your revenue:
Prime cost % = ((Food cost + Labor costs) / Revenue excl. VAT) × 100
💡 Prime cost example:
Restaurant from earlier examples:
- Revenue excl. VAT: €41,284
- Food cost: €12,500
- Labor costs: €10,533
Prime cost: (€23,033 / €41,284) × 100 = 55.8%
What is a healthy prime cost?
This varies by restaurant concept, but here are typical benchmarks:
- Fine dining: 50-60% (premium prices, higher staffing)
- Casual dining: 55-65% (moderate prices and service levels)
- Fast casual: 60-70% (competitive pricing, streamlined service)
- Delivery-focused: 50-60% (reduced staffing, but platform commissions)
⚠️ Note:
Once your prime cost exceeds 70%, profitability becomes challenging. You still face rent, utilities, insurance, and equipment depreciation.
How often should you calculate prime cost?
Monitor your prime cost monthly at minimum. Many profitable restaurants track it weekly — a pattern we see repeatedly in restaurant financials where early detection prevents small issues from becoming major problems.
For daily oversight, you can monitor:
- Labor costs per day (hours scheduled × revenue generated)
- Daily ingredient purchases versus revenue
- Covers served compared to staff scheduled
How to calculate prime cost? (step by step)
Gather your food cost figures
Add up all expenses for ingredients and beverages from the past month. Check your accounting software for the accounts 'food purchases' and 'beverage purchases'. Don't forget to subtract VAT if it's included.
Calculate your total labor costs
Add up all labor costs: gross wages, employer contributions (approximately 25%), holiday pay, and any bonuses. If you're unsure, check your payroll administration for the total amount you spend on staff per month.
Add food cost and labor costs together
This is your prime cost in euros. Divide this by your revenue excluding VAT and multiply by 100 for the percentage. If you're above 70%, action is needed.
✨ Pro tip
Track your prime cost every Tuesday at 2 PM for 8 consecutive weeks to spot your restaurant's natural patterns. This timing captures weekend results while avoiding Monday chaos or week-end rushes.
Calculate this yourself?
In the KitchenNmbrs app you can do this in just a few clicks. 7 days free, no credit card.
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Frequently asked questions
Should I include VAT in my prime cost calculation?
No, always calculate using amounts excluding VAT. The VAT isn't yours — you're collecting it for the tax authority. For accurate prime cost calculations, use revenue and expenses excluding VAT.
What if my prime cost exceeds 70%?
Profitability becomes very difficult. First examine your labor costs: are you scheduling efficiently? Then review your food costs: are purchase prices and portion sizes realistic? Often the solution involves smarter shift planning and tighter inventory control.
Do cash tips count as labor costs?
Only if they're processed through payroll with employer contributions. Tips paid directly to staff in cash aren't labor costs for your calculation — they don't actually cost you anything beyond the initial transaction.
Can I reduce prime cost without sacrificing quality?
Absolutely, through smarter operations. Schedule fewer staff during slow periods, buy seasonal ingredients, minimize waste, and audit portion sizes. Small operational tweaks often yield significant improvements.
📚 Sources consulted
- EU Verordening 852/2004 — Levensmiddelenhygiëne (2004) — Official source
- EU Verordening 853/2004 — Hygiënevoorschriften voor levensmiddelen van dierlijke oorsprong (2004) — Official source
- EU Verordening 1169/2011 — Voedselinformatie aan consumenten (2011) — Official source
- NVWA — Hygiënecode voor de horeca (2024) — Official source
- NVWA — Allergenen in voedsel (2024) — Official source
- Codex Alimentarius — International Food Standards (2024) — Official source
- FSA — Safer food, better business (HACCP) (2024) — Official source
- BVL — Lebensmittelhygiene (HACCP) (2024) — Official source
- Warenwetbesluit Bereiding en behandeling van levensmiddelen (2024) — Official source
- WHO — Foodborne diseases estimates (2024) — Official source
Food Standards Agency (FSA) — https://www.food.gov.uk
The HACCP standards shown in this application are for informational purposes only. KitchenNmbrs does not guarantee that displayed values are current or complete. Always consult the FSA or your local authority for the latest regulations.
Written by
Jeffrey Smit
Founder & CEO of KitchenNmbrs
Jeffrey Smit built KitchenNmbrs from 8 years of hands-on experience as kitchen manager at 1NUL8 Group in Rotterdam. His mission: give every restaurant owner control over food cost.
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